Foreign Currency Reserves In Africa, End-2015; Some Are In Tatters

A FEW weeks ago news from Nigeria was that foreign-currency reserves had slipped to $26.4 billion, the lowest in more than a decade, as the dollar shortage bit. Already, United Airlines and Iberia have halted operations in Nigeria or cut flights as they struggle to move revenue out of the country; other airlines including British Airways and Emirates have said they are facing difficulties obtaining outstanding air ares.

But Nigeria isn’t alone. 2015 was a tough one for many African countries, with currency turmoil driven by a commodity market crash and the slowdown in the global economy. In response, many governments rushed to their treasuries to pump dollars into the market and support their respective currencies.

According to the International Monetary Fund (IMF), the rule of thumb to judge if a country has sufficient reserves is that it should cover three months worth of imports. That guards it against short-term external shocks, and helps a country handle large drops in output and consumption without experiencing a crisis.

Looking at data from the African Development Bank (AfDB), by the end of 2015, the majority of African countries had more than three months worth of import cover in reserve, but 17 were in the red.

The ones in peril are a motley bunch – everything from Africa’s richest country per capita (Equatorial Guinea, with 1.9 months equivalent), the continent’s third largest economy (Egypt, 2.5 months), a number of oil exporters (Congo, 2.8 months; Chad, two weeks) to low-income countries in conflict (Burundi, 2.1 months; DR Congo, 1.2 months).

It suggests that there is little relationship between national savings and national wealth, economic size, growth rates, or political stability.

In fact, the country with a virtually empty treasury is Mozambique, as it struggles to keep up with debt payments. The country’s annual public debt servicing costs are estimated to have almost doubled to about 4.5% of GDP; credit ratings were downgraded deep in junk territory when the government admitted it had hidden of $1.4 billion of undisclosed loans to state-owned companies.

Yet Mozambique has posted roaring economic growth figures over the past five years; at over 7%, it was among the highest not just in Africa but also in the world.

Since the discovery of the undeclared loans by the IMF, European nations and multilateral lenders have withheld funding; the yields on Mozambique’s $726 million of bonds due January 2023 rose six basis points to 16.3% in April. Such a high yield suggests that creditors have little faith in the country’s ability to pay back its debt.

And yet, the country with a bulging treasury is Libya, which has been wracked by sectarian conflict for the past four years. There are two rival, parallel governments in the country, each claiming legitimacy; the Islamic State is a third force controlling a broad swathe of the country.

In Libya, it seems the problem is not how to make money – it’s how to share it.